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China to ease investment rules in Free Trade Zones

2014-12-29 13:11:19Source:XinhuaAuthor:

The Chinese government has been authorized to ease investment rules in three new free trade zones (FTZs) after top legislature gave the go ahead during a bi-monthly meeting on Sunday.

The new zones will be located in South China's Guangdong province, Southeast China's Fujian province and North China's Tianjin. The only FTZ currently operating is in Shanghai.

The resolution on temporary adjustment of regulations for administrative approvals in the new FTZs was passed through a vote at the bi-monthly session of the National People's Congress Standing Committee.

According to the resolution, foreign companies will not need government approvals to set up ventures in these FTZs, shut down and merge ventures or change their business purpose. Instead, they will only need to report business plans to the authorities.

These preferential policies conflict with 12 articles out of four laws on foreign companies, Sino-foreign joint ventures and Taiwan investors so the legislature authorized the State Council to adjust the implementation in the FTZs.

The temporary adjustment will begin in March next year and will last for three years, according to the resolution.

After three years, the State Council will run an assessment on the adjustment and decide whether to propose a law revision or return to the original regulations.

Earlier this month, the State Council announce that China will establish three new FTZs and expand the Shanghai FTZ, in an attempt to reform the administrative system and improve the market environment.

Since the launch of the Shanghai FTZ in September 2013, the government has used it to test a number of new policies including negative list management on foreign investment, preferential trade and financial policies, and opening up more industries to foreign investors.

"The practice [in Shanghai FTZ] can be copied and applied elsewhere," said Commerce Minister Gao Hucheng, when explaining the draft resolution on behalf of the State Council to lawmakers on Friday.

Through the expansion of the Shanghai FTZ and the addition of new zones, reform policies can be tested in a larger geographic area and on a bigger scale, he said.

According to the resolution, the Guangdong FTZ, with a total area of 116.2 square km, will include zones in the cities of Guangzhou, Shenzhen and Zhuhai.

The Tianjin FTZ, with a total area of 119.9 square km, will consist of three sections around the Tianjin Port, Tianjin Airport and the Binhai New Area industrial park.

The Fujian FTZ, with a total area of 118.04 square km, will include industrial areas in the provincial capital of Fuzhou, the city of Xiamen, and Pingtan, a new industrial park targeting Taiwan investment.

An area of 91.94 square km will also be added to the Shanghai FTZ.

The business model behind the pioneering China (Shanghai) Pilot Free Trade Zone should now be copied at other suitable sites across the country where conditions are right, according to President Xi Jinping.

Addressing a meeting of top decision-makers, the president said the experience gained in the Shanghai FTZ "are like seeds cultivated in a test field, and now we will plant them across a greater range of sites, in a hope that they will bear more fruit".

Xi acknowledged the progress made in the Shanghai FTZ, praising the efforts in transforming government functions, facilitating investment and trade, and improving the business environment.

Some 12,000 firms have been established in the Shanghai FTZ since its launch in late September last year. Foreign trade in the zone reached 747.5 billion yuan ($122.25 billion) in its first year of operation, according to Xinhua.

The 29 sq km zone in the Chinese financial hub has promised free trade, greater financial opening and fewer government controls over business activities.

Coastal provinces and regions, including Guangdong, Fujian, and Tianjin are among the most likely sites to host the next FTZs, and their applications are likely to be approved before the end of this year, Reuters reported, citing two unnamed sources with local governments.

The negative list system, an innovative approach introduced in Shanghai to provide easier market access for foreign companies, could be improved in a Tianjin FTZ, Xinhua's Economic Information Daily reported.

The FTZ expansion plans sparked rises in the share prices of likely new sites, with Tianjin Harbor and Tianjin Marine Shipping Corp increasing by more than 7 percent in Shanghai trading on Tuesday.

Prior to news on the zones, the State Council approved the expansion of Tianjin Harbor, with an added 1,120 square kilometers of new water area, and more than 70 new berths.

Bai Ming, a researcher at the Ministry of Commerce, said the expansion plans laid a solid foundation for Tianjin to explore opportunities for an FTZ.

"With the integration of Beijing, Tianjin and Hebei province, more and more resources will be mobilized to give more chances to a Tianjin FTZ," said Bai.

More than 20 provinces and cities prioritized the development of an FTZ in their government work reports this year, and experts suggested the second batch of FTZs could have distinctive differences to the first in Shanghai.

Zhou Hanmin, a senior political adviser to the Shanghai municipal government, said at a recent forum that FTZs in other provinces will have their own particular focuses compared with Shanghai, aimed at pushing forward their own specific economic reforms and policies.

"Guangdong will focus on Hong Kong and Macao, and Fujian will focus on Taiwan, while Tianjin will mainly emphasize the Silk Road Economic Belt," Zhou said.

The Shanghai FTZ has summarized a total of 21 innovative administrative measures that could be duplicated elsewhere in the country: six in investment management, the same number in financial innovation, and nine in trade promotion.

But the measures must still be approved by the central government before they are introduced elsewhere.

Some experts cautioned, however, on the over-development of FTZs.

Chen Bingcai, a researcher at the National School of Administration, said reforms in the Shanghai FTZ, especially those in offshore finance, were in line with the city's position as a financial center. But other cities' attempt to apply for favorable policies might be contrary to the original intention of FTZs.

Others suggested that despite little possibility of success, some local governments are already cutting red tape and pushing forward reforms in preparation for an FTZ application.